Do you really understand the cashflow of your business?

April 20, 2020

Having enough money to pay all of your bills is a real worry for many right now. I’m sure most of you with small businesses have already reviewed any unnecessary costs in your business, chased due payments and furloughed staff members if necessary already. So today I wanted to spend some time talking about monitoring your cashflow going forward.

Cashflow is defined as how much money is going in and out of your business at a given time. It’s the amount of money you have available to pay your current obligations in the (short-term) future. It’s also different from profit- for instance your cashflow can still be fine due to a business loan, so you can pay your bills but that doesn’t mean you are necessarily making a profit.

I would strongly recommend using accounting software to help you keep on top of your ingoings and outgoings if you don’t already as it will allow you to get a quick snapshot of your cashflow as it currently stands if you keep it up to date. Some accounting systems also have a function to help you to do a forecast so you can look at projections for future months (such as Quickbooks’ Cash Flow Forecast Report).

A cashflow projection/ forecast can help you project how healthy your bank balance will be going forward and whether you can pay your bills. For instance, if you have furloughed your employees but have decided to pay them as normal despite the government’s money not coming in until a later date, it can help you check if you can afford to do this up until the point you are expected to receive the money.

Or you might be one of the fortunate businesses that are growing during this time, and you are having to invest a lot of money to enable you to grow further. Keeping on top of your cash flow forecast will help you know whether you need to source additional funding to do this and if so, how much?  This means it can be planned and thought out well rather than realising last minute there is an issue and hitting a stressful crisis point.

If you don’t have access to a forecast tool on your accounting system, then you can create one on excel with a tab for each future month with your estimated takings in each month, future expenses due to be paid in each month and a running total of how much cash you have should have available (or not).

Click here to read a great article by startups.co.uk that includes a link to download an excel template to create your own today. 

Good luck! Please let me know how you get on and if you have any questions at all- do get in touch (lucy@bornatdawn.com). x

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